2. PLAIN PACKAGING WOULD CREATE UNJUSTIFIED OBSTACLES TO THE FREE MOVEMENT OF GOODS

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4 CECCM POSITION PAPER ON PLAIN PACKAGING KEY POSITION POINTS Plain packaging would result in an unjustified infringement of the free movement of goods; Plain packaging would violate trade mark rights and interfere with property rights guaranteed by EU law; Plain packaging is inconsistent with WTO obligations and would expose the EU and the Member State in question to WTO complaints; Plain packaging will have other serious negative consequences, including illicit trade; There is no evidence that plain packaging would achieve public health goals. Page 1 1. INTRODUCTION The new Tobacco Product Directive (the TPD2 ) will be implemented in the EU Member States as of May Until such time, the current Directive (the TPD1 ) remains in force and Member States are prohibited from introducing new packaging requirements that conflict with the provisions of TPD1. However, the TPD2 does not mandate plain packaging. It purports (in the view of CECCM s members, unlawfully) to allow Member States to introduce stricter requirements concerning the packaging and labelling of tobacco products. In seeking to do so, it goes against the basic principles of EU law and would prevent the free movement of goods in packaging which otherwise comply with the requirements of the Directive. In any event, any plain packaging initiative would still be subject to stringent conditions, including demonstrating that it is proportionate, appropriate and necessary to achieve a legitimate aim and the least restrictive measure available. Furthermore, the recitals of TPD2 also clarify that plain packaging must be compatible with the TFEU, with WTO obligations and [must] not affect the full application of this Directive. Any plain packaging initiative would fail to meet these requirements. In particular, plain packaging would effectively deprive manufacturers of their property rights as protected by The Charter of Fundamental Rights of the European Union (the EU Charter ) and the European Convention on Human Rights. Even if such interferences were capable of justification, plain packaging would still require the payment of significant compensation by the relevant Member State in respect of the effective expropriation of valuable intellectual property rights. Moreover, a plain packaging measure would place an EU Member State in breach of its WTO obligations. These issues are described in detail below. 2. PLAIN PACKAGING WOULD CREATE UNJUSTIFIED OBSTACLES TO THE FREE MOVEMENT OF GOODS Any national measure introducing plain packaging would create unjustified obstacles to the free movement of goods. Tobacco manufacturers could not sell products that they legally manufacture and sell in other Member States in the Member State that has imposed plain packaging. Confederation of European Community Cigarette Manufacturers A.I.S.B.L. Registered office: Avenue Louise, B-1050 Brussels - Tel Fax ceccm@ceccm.eu - Registered number:

5 The introduction of plain packaging by a Member State would seriously damage competition and market dynamics, which would undermine the essential aspect of free and fair competition in the EU. Without trademarks and the ability to differentiate their products, it becomes very difficult, if not impossible, for manufacturers to enter into new markets. By focussing competition on price, it also makes it difficult for manufacturers with small market shares to strengthen their market position. The removal of trademarks, therefore, creates a significant barrier to market entry, and undermines an essential aspect of free and fair competition in the EU. Page 2 3. PLAIN PACKAGING WOULD VIOLATE TRADE MARK RIGHTS Plain packaging violates the basic rights of trademark owners under EU trade mark law and WTO law because it effectively deprives the owner of the relevant trademark rights of the ability to use their intellectual property for its intended purposes, including in communicating quality and origin and in distinguishing their products from those of a competitor. 4. PLAIN PACKAGING INTERFERES WITH PROPERTY RIGHTS GUARANTEED BY EU LAW Under EU law, the deprivation of property rights by the State would require (among other requirements) the payment of compensation in order to be lawful. Article 17 of the EU Charter states that no one may be deprived of his or her possessions except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for the loss. Therefore, even if plain packaging did not otherwise breach EU law or WTO obligations, its adoption by a Member State would require the payment of significant compensation. 5. PLAIN PACKAGING IS INCONSISTENT WITH THE EU S AND MEMBER STATES WTO OBLIGATIONS AND WOULD EXPOSE THEM TO WTO DISPUTES Issues of EU law and fundamental rights aside, the TPD2 makes clear that plain packaging can only be adopted by a Member State if it is consistent with WTO obligations. Many countries consider plain packaging to be in breach of WTO obligations. Following the adoption of the Australian plain packaging legislation, Honduras, Dominican Republic, Cuba and Indonesia have challenged the legislation under the WTO dispute settlement system. The dispute has attracted the attention of 36 WTO trading partners, including the EU, who have joined the dispute as Third Parties. If the Australian plain packaging legislation is found to be incompatible with WTO obligations, Australia will be required to bring its legislation into conformity with WTO law or face possible trade sanctions, including trade-based retaliation. A final ruling is not expected before Any Member State that introduces plain packaging before the outcome of those proceedings, risks subjecting itself and the EU to WTO proceedings, and having to repeal such legislation. 6. PLAIN PACKAGING WILL HAVE OTHER SERIOUS NEGATIVE CONSEQUENCES Plain packaging would result in increased illicit trade and down trading Confederation of European Community Cigarette Manufacturers A.I.S.B.L. Registered office: Avenue Louise, B-1050 Brussels - Tel Fax ceccm@ceccm.eu - Registered number:

6 Plain packaging would increase illicit trade, as counterfeit products would become easier to make, distribute and sell. Counterfeiters could expropriate manufacturer s branding and sell fake but branded product. Both counterfeiters and contraband operators would assume, correctly, that plain packaging would result in a significant increase in demand for cheap, illicit products, in particular amongst sections of society, such as minors, that many regulatory measures seek to protect. Developments in Australia reinforce our serious concern that plain packaging may fuel the illicit trade. The latest KPMG report i, commissioned by a number of tobacco manufacturers, using the widely accepted practice (including within the EU) of empty pack surveys, shows that the share of illicit trade of total consumption has grown from 11.5% to 14.5%, since the introduction of standardised packaging. Figures published by the Australian Customs and Border Protection Service (ACBPS) after the introduction of standardised packaging show that the number of cigarettes seized increased by over 41% and new, illegal brands, which look like they are legitimate standardised packs have been found. Moreover, the presence of illicit whites ii (which was almost non-existent in pre-plain packaging Australia) has grown since plain packaging came into force iii. The KPMG Report also notes that there is an increase in down-trading by consumers to value brands and, in general, bigger brands are benefiting while smaller brands are contracting. Plain packaging risks damaging the EU s trade interests If one Member State were to ban or restrict the use of trade marks on tobacco products, the EU s ability to prevent other non EU countries from introducing similar measures against other product types would be undermined. It would also risk damaging the EU s international trade, investment and intellectual property credentials. Page 3 7. THERE IS NO EVIDENCE THAT PLAIN PACKAGING WOULD ACHIEVE PUBLIC HEALTH BENEFITS There is no reliable evidence to date that plain packaging will achieve legitimate public health objectives. The Australian Government has not been able to demonstrate that stated public health objectives (in terms of actual changes in smoking behaviour) have been achieved since the introduction of the measure in December There has been no observed change in smoking prevalence or in the long term decline in legal consumption that was not already present before plain packaging. Overall consumption (including illicit) has remained stable. 8 June 2015 i See KPMG 2014 Full Year Report Illicit tobacco in Australia, 30 March 2015, Page 6. Available via: This is the 4 th report by KPMG examining the size of the illicit tobacco market in Australia. ii The KPMG Report defines illicit whites as Manufactured cigarettes which may be produced legally in one country/market but which the evidence suggests are smuggled across borders at some point during their transit to Australia, where they have limited or no legal distribution and are sold without the payment of tax. iii See the KPMG Report, p.44. Confederation of European Community Cigarette Manufacturers A.I.S.B.L. Registered office: Avenue Louise, B-1050 Brussels - Tel Fax ceccm@ceccm.eu - Registered number: